Looming Budget Cuts Scaring Economy

The end of the Bush tax cuts and the arrival of more than a trillion dollars in budget cuts scheduled for the end of the year are already sending ripples of fear through the economy. Defense contractors have slowed hiring and companies are being warned that tax breaks may disappear, The Washington Post reported.

Various industries have already trooped to Congress to warn about dire consequences. Hospital executives are warning about Medicare cuts, university presidents about cuts in research grants, and the aerospace industry is warning more than 1 million American jobs will be lost if scheduled cuts in the defense budget occur, the Post reported.

“How do you plan for chaos?” Marion Blakey, president of the Aerospace Industries Association, told the Post. “It’s almost a unique moment in government because there’s so much at stake. And there’s nothing that inspires confidence that this will get done.”

The tax cuts enacted under President George W. Bush are set to expire in December at the same time a temporary payroll-tax holiday pushed by President Barack Obama expires. In January, $1.2 trillion in across-the-board spending cuts are due to kick in.

With both Congress and the White House up for grabs in November, a solution is unlikely to be agreed upon before the election returns are in — meaning the issue could land in the lap of a lame-duck Congress. Some observers are predicting a short-term deal that would kick the can down the road to the spring of 2013, the Post reported.

However, former Treasury Secretary Robert Rubin told the Post such a move could lead to another downgrade of the U.S. credit rating.